What do equity traders at major firms like Merrill do these days?
- Thread starter javs5150
- Start date
Institutional trading is a different game, and there is no reason to call either one dumb. Actually, thinking of Goldman, I recall this story. It is not about equity, but it is about dumb and smart, and it is about institutional trading:
In early nineties, Goldman all over sudden started offering very competitive bids for LIBOR swaps, say if the going 5 year rate was 6 percent, they where willing to enter into a reciever for 50 bps less, but on one conditon - the libor would be reset "in arrears", that is the forward rate will be fixed at the end of the period. Papa/Mama pension funds, small-time hedge funds and others bought these like hotcakes.
These trades were actually even cheaper then ATM forward -50bps, there were more like ATM-90bps. In two or three weeks goldman IR derivatives desk made over 300M on these trades. The catch was simple - LIBOR reset in arrears was requires covexity adjustments and Goldman was selling vol sensitive swaps to unwitting counterparties. The idea of convexity adjustments was not fully developed and completely obscure to the "retail investor", so people caught up only when someone else figured it out.
So institutional trades are not that dumb after all
In early nineties, Goldman all over sudden started offering very competitive bids for LIBOR swaps, say if the going 5 year rate was 6 percent, they where willing to enter into a reciever for 50 bps less, but on one conditon - the libor would be reset "in arrears", that is the forward rate will be fixed at the end of the period. Papa/Mama pension funds, small-time hedge funds and others bought these like hotcakes.
These trades were actually even cheaper then ATM forward -50bps, there were more like ATM-90bps. In two or three weeks goldman IR derivatives desk made over 300M on these trades. The catch was simple - LIBOR reset in arrears was requires covexity adjustments and Goldman was selling vol sensitive swaps to unwitting counterparties. The idea of convexity adjustments was not fully developed and completely obscure to the "retail investor", so people caught up only when someone else figured it out.
So institutional trades are not that dumb after all
I would rather be called a trader than an investor, in bear or more recently bullmarket.
*******
''What you call luck i call a small sample''John Henry-trend trader.
Thanks for pointing out what all the rocket scientists are unaware of.
Well, from your nick I would think that you know what convexity and convexity adjustment is
BTW, what kinds of bonds? anyway, all I wanted to say is that there is no real comparison between the two groups - there is a big difference between filling a clients order (and plenty of clients do want just that) and trading on a smaller prop. acount. Also, equity is a small fraction of what big firms do and most of the smart people try to get as far away from pure equity trading as possible. Personally, I think IR derivatives, credit derivatives and MBS's are the most fun to trade - they are very rich products. I would certainly not want to get closer to equity then equity derivatives.why would you not want to get any closer to equities than derivatives?..... btw great story about goldmine....
A. Anything the bond traders tell them to.
SLE-
I was in govies and yeah you could say I know a thing or two about convexity. Credit derivatives are the flavor of the day right now. As for mortgages maybe we should start a forum discussing prepayment modeling?
Over-
Why would anyone stay away from equities? If you work on the sell side you know where the real $'s made.
To those who think ALL traders at investment banks are order takers and can't trade - you're sadly mistaken. The majority do trade flow but to think these people are inept or cluless shows a certain level of ignorance about the real world.
Interesting story if anyone cares to read it.
http://216.239.37.100/search?q=cach...df+revenge+of+the+bond+traders&hl=en&ie=UTF-8
SLE-
I was in govies and yeah you could say I know a thing or two about convexity. Credit derivatives are the flavor of the day right now. As for mortgages maybe we should start a forum discussing prepayment modeling?
Over-
Why would anyone stay away from equities? If you work on the sell side you know where the real $'s made.
To those who think ALL traders at investment banks are order takers and can't trade - you're sadly mistaken. The majority do trade flow but to think these people are inept or cluless shows a certain level of ignorance about the real world.
Interesting story if anyone cares to read it.
http://216.239.37.100/search?q=cach...df+revenge+of+the+bond+traders&hl=en&ie=UTF-8
have traded such miniscule amounts of volume in the past couple of years that many of the "aggressive" type firms in this area like Deutsche Bank, have been scaling back.
ie.) The Equity Derivative's desk in San Francisco for DB is now down to 1 person, after having 3 full-time sales/traders and an assistant during the Bull of 1996-1999.
In any event, the flow just isn't there anymore and when it will come back, is anyone's guess. Until then, it's cut costs at ALL costs!
ie.) The Equity Derivative's desk in San Francisco for DB is now down to 1 person, after having 3 full-time sales/traders and an assistant during the Bull of 1996-1999.
In any event, the flow just isn't there anymore and when it will come back, is anyone's guess. Until then, it's cut costs at ALL costs!